Repossession Rules Undergo a Makeover

In 2015 the rules relating to the repossession of consumer goods were updated. The Credit (Repossession) Act was repealed but still applies to credit contracts entered into before 6 June 2015. For credit contracts entered after that date, the rules governing when, how and what you can repossess are found in the Credit Contracts and Consumer Finance Act.

A recent Auckland High Court decision demonstrates when, how and what a creditor can repossess to recoup its losses. In that case, the borrower had taken a loan from BMW Financial Services New Zealand Limited of $152,722.31 to purchase a reconditioned BMW racing car from Singapore. In return for the loan, the borrower gave the lender security over the car.

When the borrower defaulted on the loan, it had grown to $178,639.14. The lender allowed the borrower six months to try to sell the car, but no sale eventuated. The lender repossessed the car and instructed a commercial dealer to sell it. Valuations commissioned by the lender and the commercial dealer indicated the car was valued between $40,000 and $60,000. The car was eventually sold by the commercial dealer and net proceeds of just $53,395 were paid to the lender. After deducting this amount from the borrower’s loan, $125,244.14 was outstanding. The lender is now seeking to bankrupt the borrower in respect of this debt. The borrower claims that the lender failed to follow the correct process when it sold the car.

The repossession of the car was governed by the Credit (Repossession) Act which required the lender to “ensure that every aspect of the sale” of the car “including the manner, time, place and terms is commercially reasonable and, in particular must use all reasonable efforts to obtain best price”. Although this legislation has now been repealed, a similar requirement is embodied in the Credit Contracts and Consumer Finance Act.

The borrower claims that the lender did not “value, market or sell the car on the basis that would yield the best price”. The borrower had not purchased the car as a racing car, but as a collector’s item. He gave evidence that Antonio Garcia had raced the car, and it was the same car in which Andy Prialux had won the World Touring Car title in 2004/05. It appears that the car was not marketed as a collector’s item. The commercial dealer’s advertisement stated “It’s a bit of a mystery but appears to have been imported and also looks to be a professionally built circuit race car. Officially that’s all we know”. The High Court stated that “If [the lender] should have, but did not, value, market and sell the car as an internationally unique collector’s car rather than a racing car, it may have breached its duty to ensure the sale was commercially reasonable”.

The High Court did not have to decide that point as the primary question was to determine whether the borrower could appeal an earlier District Court decision which ordered him to pay the lender the amount owing plus costs. A question of timing and late filing was at issue, which I do not discuss in this article. Ultimately, the borrower’s application for leave to appeal out of time was granted. It will be interesting to see whether the Court that hears the borrower’s appeal will be persuaded by his argument that the lender breached its duty to ensure the sale was commercial reasonable.

While not applicable to this case (which will be decided under the old legislation), the new legislation extends consumer protection on several fronts. For example, a lender can only repossess goods that have been specifically identified in a credit contract and essential consumer goods such as beds, stoves and washing machines may not be used as security. Another important development for lenders to be aware of is the requirement for repossessions to be carried out by a licensed repossession agent. With these changes it is a good time for businesses to review their terms of credit, repossession processes and policies, and seek legal advice where necessary. In the meantime, I will watch the court news with interest for the outcome of the (former) BMW owner’s appeal.